📖Trading Basics

On-chain Perpetual Future Contracts

When engaging in trading activities on GemaX, you are participating in on-chain perpetual future contracts. Perpetual futures, unlike traditional futures contracts, do not have an expiry date. The absence of an expiry date means there is no physical settlement of goods. Instead, the purpose of perpetual futures contracts is to exchange risk related to the price of an asset. When a trader opts to close a position, a cash settlement is executed, dependent on the difference in asset prices from the trade initiation to closure. The predetermined leverage level plays a crucial role in determining the settlement amount. Since these contracts do not expire, traders have the flexibility to maintain positions for as long as they desire. However, continuous monitoring of underlying asset prices and funding rates is essential, as profitability is contingent on these changes over time.

Collateral & Cross-Margin Account

Before engaging in trading activities on GemaX, users are required to deposit a form of collateral (USDC) into a cross-margin account. The operational structure of this account is distinctive. Unlike managing the margin of each position separately, all position margins are combined in a pooled manner. This pooling mechanism allows for the offsetting of positive and negative unrealized profits. The cross-margin mechanism serves as an advanced risk management tool, offering traders enhanced liquidity and reducing the likelihood of undesired position liquidations. However, increased flexibility comes with added responsibility. Since trades involve leverage, swift market movements can lead to substantial changes in unrealized gains or losses, potentially exceeding the initial collateral amount. As GemaX trades involve leverage, there is a possibility for a party's unrealized losses to quickly surpass their deposited collateral. The cross-margin feature helps mitigate some of this risk by allowing margin utilization from all deposits and positions in the sub-account. In a future update, isolated trade positions will be introduced to provide traders with more flexibility. Currently, traders can isolate positions by placing orders in distinct sub-accounts.

Funding Rates

Instead of settling contracts at a specific closing date, perpetual futures markets employ the funding model. Funding rates are recurring payments swapped between traders and solvers who maintain perpetual contract positions. Due to the indefinite nature of these contracts, there is a potential for a price difference to emerge between the perpetual contract's price and the spot price of the underlying cryptocurrency. Funding rates play a crucial role in preserving the perpetual contract's price-to-spot price ratio at 1:1. In the case of a negative funding rate, individuals in short positions compensate those in long positions. Conversely, with a positive rate, individuals in long positions make payments to those in short positions.

Terms and Definitions:

1. Unrealized Profit and Loss (UPNL): Reflects potential gains or losses if a trader closes active positions, calculated by evaluating the USD difference between the average entry price and the prevailing index price.

2. Open Interest (OI): Represents the total value of ongoing perpetual contracts held by traders, serving as a measure of market activity.

3. Account Health: Indicates the health of a trader's position, with the risk of liquidation when the Equity Balance matches the Maintenance Margin.

4. Maintenance Margin (or CVA): Acts as the trader's "security deposit," marking the point of imminent liquidation if the equity balance drops to this level.

5. Equity Balance: Combines a trader's dedicated account balance and UPNL, indicating the probable future balance and leading to liquidation if it matches the Maintenance Margin.

6. Allocated Balance: Represents funds assigned by traders for a specific Margin Sub-Account, available for margin positions or reversion to the Main Account after a defined Fraud Proof interval.

7. Initial & Locked Margin: Initial Margin contributes to Locked Margin, representing margins engaged across all live positions, acting as a buffer against excessive position openings.

8. Available for Orders: Denotes the account balance accessible for Requests and Orders after considering Locked Margin and Maintenance Margin.

9. Withdrawal & Proof of Time: GemaX finalizes transactions instantly, with a 12-hour fraud-proof phase necessary before withdrawing the original USDC deposit to address risks like double spending. Plans for third-party integration to expedite withdrawals are under consideration.